Value-Added Tax (VAT)

Naturally many news items pertaining to VAT are appearing in the press these days. Some people are eagerly awaiting its implementation in the fond hope that it would lead to more revenue for the exchequer and better tax administration, whereas some people are bitterly opposed to it on the plea that it would lead to increasing in prices. In this article, an attempt has been made to demystify VAT and also to see it in perspective. VATs observed in practice in different countries exhibit considerable diversity as regards the base of the tax and the range of economic activity to which it is applied.

Through repeated discussions and collective efforts of the Empowered Committee, in about a year and a half nearly 98 per cent success was achieved in respect of the first two objectives pertaining to harmonization of sales tax structure through implementation of uniform floor rates of sales tax and discontinuation of sales-tax- related incentive schemes.

The VAT regime was to have been imposed on April 1, 2003. Fierce opposition from the trade lobbies and several state governments stalled the movement and the introduction of VAT was postponed. Haryana was the only state to go ahead with the imposition of VAT in 2003 and in a year’s time for the state government’s tax collections shot up by 30 per cent. This opened the eyes of other state governments to the fact that if they wish to boost their revenues, then VAT is an idea whose time has come. In the meeting of the Empowered Committee on June 18, 2004, all the States, to the introduction of VAT.

As already indicated, the design of State-level VAT has been worked out by the Empowered Committee by striking a balance between the common points of convergence regarding VAT.

Included in this exempted category is a set of maximum of 10 commodities flexibly chosen by individual States from a list of goods (finalised by the Empowered Committee) which are of limited social importance for the individual States. The position will be examined after one year.

This design of the State-level VAT has been carefully worked out by the Empowered Committee after repeated interactions with the States and others concerned and finding the right balance between the needed convergence and federal flexibility as well as ground-level reality. From all the components of the VAT design taken together, it will be observed that the total effect of this VAT system will be to rationalise the tax burden.

It may be noted that this VAT design has been worked out carefully by the Empowered Committee to strike a balance not only between the rough points of convergence and to begin with and what should be incorporated subsequently for further perfection of the VAT system.

Three of these countries have since reintroduced the tax: Ghana in 1998 and Malta and Vietnam in 1999. From our neighbours China introduced it in the year 1984 and at present, about 47% of the total state tax are collected through VAT. Pakistan introduced it in 1995-96 and at present VAT contributes about 40% of its total tax collections.


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↑ Posted on May 17th, 2015

About Mohan Manohar

is a blogger from India who founded Ittech back in 2007. He is passionate about all things tech and knows the Internet and computers like the back of his hand.You can follow Mohan onhttps://about.me/mohanmanohar

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